Taxpayer Wins Appeal: Section 271(1)(c) Penalty Overturned Due to Reasonable Explanation and Good Faith

The SC overturned the penalty imposed under Section 271(1)(c) of the Income-tax Act. The Tribunal found the assessee's explanation reasonable and made in good faith. Disallowance of a deduction does not automatically constitute furnishing inaccurate income particulars. The penalty was deleted, allowing the assessee's appeal.

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Issues:
- Imposition of penalty under Section 271(1)(c) of the Income-tax Act, 1961 for assessment year 2015-16 based on disallowance of interest claimed by the assessee on OD account.

Analysis:
1. The appeal was filed by the assessee against the penalty imposed by the Commissioner of Income-Tax (Appeals) under Section 271(1)(c) for assessment year 2015-16. The Commissioner had imposed a penalty of &8377; 13,23,672 based on disallowance of interest claimed by the assessee on the OD account with Punjab National Bank.

2. The assessee, a resident company, had filed its return of income declaring nil income after set off of loss. The Assessing Officer completed the assessment under Section 144 of the Act, making additions resulting in a total income of &8377; 73,77,968. The Commissioner (Appeals) granted relief to the assessee by deleting most additions but disallowed the deduction claimed for interest on the OD account, leading to the penalty imposition under Section 271(1)(c).

3. The counsel for the assessee argued that the interest debited to the OD account reduced the OD limit, and the liability was increased in the balance sheet. The counsel contended that all relevant information was provided, and the claim was made in good faith. Therefore, the penalty under Section 271(1)(c) should not be imposed.

4. The Tribunal found that the interest charged to the OD account was debited to the profit and loss account and allowed by the Assessing Officer. The Tribunal noted that the assessee had increased its liability to that extent and the OD account limit was reduced accordingly. The material placed on record supported the assessee's claim.

5. The Tribunal held that the explanation provided by the assessee was reasonable and made in good faith. Referring to the legal principle established by the Supreme Court, the Tribunal concluded that disallowance of a deduction claimed by the assessee does not automatically lead to furnishing inaccurate particulars of income. Therefore, the Tribunal deleted the penalty imposed under Section 271(1)(c) of the Act.

6. In conclusion, the Tribunal allowed the appeal, ruling that the penalty imposed on the assessee was unwarranted. The judgment was pronounced on 11th March 2022 by the Tribunal consisting of Shri Saktijit Dey, Judicial Member, and Dr. Brr Kumar, Accountant Member.

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